Infill Thinking Lifting the O&G knowledge curve
Supply chain inflation is a trending topic in O&G. One of the biggest debates in the oilfield today centers around the sustainability of the cost reductions E&Ps achieved during the downturn. How much was lasting process change and innovation vs. temporary supply chain price concessions?
E&Ps will be far more cost sensitive this cycle than in past cycles as oil remains 50% off prior cyclical highs. This makes breakevens critical, and cost saving retention can make a big difference.
As 2017 proceeds, we should begin to get a good read on sustainability by comparing actual well cost trends to E&Ps guidance in the 10-15% range for well cost inflation this year.
Monitoring an E&P universe of about 90 public companies, we track the number of E&P management teams that mention “inflation” each earnings season. With 4Q16 drawing to a close, the chart below shows how quickly inflation has captured the industry’s attention.
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